housing supply

Inventory is low. Really low. That’s one of the big stories right now in real estate, so I wanted to spend some time kicking around some thoughts. Let’s take a look at ten things to know about housing supply in Sacramento. If you aren’t local, I hope you can still find some value. Do you see any parallels to your market? Any thoughts?

Housing supply has been vanishing over the past few years in light of greater buyer demand, sellers sitting instead of selling, less new construction, increasing sales volume, and other reasons.

2) Housing supply is really sparse (except at the top).

Housing supply was low last year, but this year it’s 15-20% lower. Having less listings means it’s really competitive for buyers – especially under $400,000. However, inventory is not low at every price range as there are far more listings at the top. Before freaking out though, this is actually a normal trend we see almost every single month. But the disparity between under $500,000 and above $1,000,000 is striking. As an FYI, it’s worth noting the top of the market does feel a bit soft.

3) Inventory is still not as low as the Blackstone days.

It’s true that inventory is anemic, but we have to remember during 2012 and 2013 it was at one month for nearly an entire year when Blackstone and other investors were gutting the market. I mention this because while the market has an aggressive feel, it’s still not what it was. If inventory persists in declining though it will be a bloodbath in terms of competition for buyers (good for sellers though as a developer mentioned to me on Twitter).

4) Inventory was 1400% higher ten years ago during the “bubble”.

Ten years ago during the worst of the real estate “bubble” popping we had a 14-month supply of homes for sale (as opposed to one month now).

5) Bank-owned inventory is not a driving factor today.

Eight years ago over 70% of all sales in Sacramento County were REOs, but that number is now about 3%. Some folks promise a new “foreclosure wave”, but it’s definitely not here right now.

6) Low inventory is putting pressure on values to increase.

Declining inventory over the past few years is a big factor in rising prices. Right now values are about where they were at the height of last summer (or slightly higher) after a lull in the fall in many neighborhoods in Sacramento County. But let’s not make the mistake to think the market is doing the same thing everywhere. The truth is in some areas increases have been modest at best over the past year while some price ranges feel flat, but the bottom of the market is hands-down experiencing the largest increases. Remember, in some price ranges the market feels more aggressive than actual value increases too, so it’s really important to sift through emotions, look at actual numbers, and not overprice because the market is “hot”. A good mantra for some areas is “Aggressive Demand, Modest Appreciation.”

7) Strong demand is a huge reason why inventory is declining:

Demand is strong right now for both buying and renting, and buyers and tenants are simply gobbling up almost anything out there (I say “almost” because buyers are still sensitive about adverse locations and overpriced homes). Thus it’s not surprising to see the median price is 7% higher than last year, the average sales price is 9% higher, and the average price per sq ft is about 9% higher. Prices increases from February to March were anywhere from 1-3% depending on the metric (this doesn’t mean values went up by 1-3% though).

8) Increasing sales volume is one reason for lower inventory.

Housing inventory is the relationship between sales and listings, so if there are more sales and no real change in the number of listings it will naturally mean inventory as a metric will show a decline. Look at the graph above to see all sales since 2013 for the first quarter of the year. Can you see how sales volume is increasing? At the same time we see cash volume declining. This reminds us the market is trying to figure out what normal looks like. It’s healthy to see sales volume growing.

9) Low interest rates have helped take homes off the market.

Historically low interest rates have played a big role in shaping inventory in that some owners are sitting on a 3.5% interest rate from years ago and they are simply not going to move unless necessary. Why would they anyway if their replacement home would come with a much higher mortgage? This means there are fewer homes hitting the market that might otherwise sell.

10) Low inventory is causing homes to sell faster.

Last year it was taking 5 days longer to sell a home and two years ago in March 2015 it was taking 15 days longer to sell a home. Can you see how low inventory makes a difference in how long it takes to sell? By the way, here is CDOM by price range. As you can see, the higher the price the longer it takes to sell. Just because it is a “hot” market does not mean every property is selling in 3 days.

BIG MONTHLY POST NOTE: Once a month I do a big market update (and it’s long purpose). Normally I talk about Placer County and the Sac Region too, but I tore my MCL a few weeks back, so I only had time to focus on Sacramento County in today’s post. Next month I’ll likely be back to normal (but I may change it up too).

Slowing down. Competitive. Price sensitive. Still more aggressive than last year. These are all ways I would describe today’s housing market in Sacramento. Let’s unpack the latest trends today to really see the market so we can better understand it and explain it to clients.

4 Hours to write this post: This post usually takes easily 4-5 hours to write each month. Keep in mind I create 50-60 graphs and then break down the trends into bite-sized talking points. I honestly LOVE doing this, and the goal is to be able to use the information for life and business. Why am I mentioning this? I just wanted to let you know how much I value helping us stay in tune with the market. New readers, the three other monthly posts are short, sweet, and general, but this one is long and hyper-local.

One Paragraph to Describe the Sacramento Market: Last month I talked about how the market has been slowing down. Sometimes when we say “slow”, it can really freak people out. But it’s actually very normal for real estate to soften during the later summer and fall after a more aggressive buying season in the spring. Moreover, when the market does change, it’s simply an opportunity to price more efficiently and explain the changing market to clients. The danger is when we say the same thing about the market all year long despite the trends really not being the same. What are some of the signs of slowing? It took 4 days longer to sell a home last month than the previous month in the Sacramento region. Housing inventory increased slightly in the surrounding four counties last month. The sales to list price ratio decreased by 1% last month. The median price in Sacramento County has been the same for four months in a row. The median price in the Sacramento region has declined by 1% over the past few months. I could go on and on. Of course let’s remember that sales volume is up by a whopping 10.9% so far this year in the region, and housing inventory is actually 22% lower right now in the region compared to the same time last year. Ultimately it’s still very competitive out there as buyers are hungry to get into contract before interest rates rise too much or while they feel like they can still afford the market (that’s so 2004). All year the market has been remarkably price sensitive too, which means buyers have been hesitant to write offers on overpriced homes. As housing supply presumably continues to increase over the next few months, watch out for price reductions to continue to increase, unrealistic expectations from sellers, and buyers gaining more power.

Sacramento County Market Trends for August 2015:

The median price has been hovering at $290,000 for 120 days.

It took an average of 34 days to sell a house last month (up 3 days from July).

Last year at this time it was taking an average of 40 days to sell a house.

FHA sales were nearly 27% of all sales in Sacramento County last month.

Sales volume is 9.7% higher so far in 2015 compared to last year.

Sales volume was 15% higher in August 2015 compared to August 2014.

There is a 1.76 month supply of homes for sale (slightly lower than July).

Housing inventory is nearly 27% lower right now compared to August 2014.

The average price per sq ft is 185 (5.5% higher than last August).

The average sales price is $319,636 (slightly lower than past two months).

The median price at $328,825 is up 6% from last year, but down 1% from the past two months.

It took an average of 39 days to sell a house last month (4 days longer than last month).

FHA sales were 23% of all sales in the region last month.

There is 2.05 months of housing inventory (up from 1.98 last month).

The average sales price is $367,545 (4.2% higher than last year, but down slightly from two months ago at $370K).

It took 3 less days to sell a house this August compared to August 2014.

FHA sales volume has increased by 30% in 2015 compared with 2014.

Housing inventory is nearly 22% lower right now compared to August 2014.

Placer County Market Trends for August 2015:

Sales volume was up 11.7% in August 2015 compared to August 2014.

Sales volume for the year is up 17% compared with 2014.

The median price in Placer County is $402,900 (increased from last month, but it’s been hovering from $390-400K generally).

Cash sales were 18.5% of all sales last month (very normal level).

It took 46 days on average to sell a house last month (6 more days than July).

Last year at this time it took 1 day longer to sell a house.

FHA sales were 19% of all sales in Placer County last month.

There is 2.35 months of housing inventory (up from 2.17 months in July).

The average price per sq ft is 201.8 (been hovering around this level for a few months).

REOs were less than 2% of all sales and short sales were roughly 2.5% of all sales last month.

I hope this was helpful. Thank you so much for being here.

Quick Pricing Advice:

Remember it is normal for the market to cool off during the latter part of the year. Knowing seasonal cycles and communicating them is key.

Price according to the most recent listings that are getting into contract rather than the highest sales from the spring. Remember, it’s normal for housing inventory to increase during the fall, so this will only allow buyers to be more picky.

The market is still very price sensitive, which means buyers are not biting on overpriced listings despite inventory and interest rates being relatively low.

Disclaimer

First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

Please see my Sharing Policy on the navigation bar if you are interested in sharing portions of any content on this blog.

The information on this website is meant entirely for educational purposes and is not intended in any way to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or any other potential real estate or non-real estate purpose. The material found on this website is meant for casual reading only and is not intended for use in a court of law or any other legal use. Ryan will not appear in court in any capacity based on any information posted here. For more detailed market analysis to be used for an appraisal report or any appraisal-related purpose or valuation consulting, please contact Ryan at 916-595-3735 for more information.

There are no affiliate links on this blog, but there are three advertisements. Please do your homework before doing business with any advertisers as advertisements are not affiliated with this blog in any way. Two ads are located on the sidebar and one is at the bottom of each post. The ads earn a minor amount of revenue and are a simple reward for providing consistent original content to readers. If you think the ads interfere with your blog experience or the integrity of the blog somehow, let me know. I'm always open to feedback. Thank you again for being here.